IMO2020: Market Uncertainty Brings More Fuel Oil Price Volatility

The oil market has recently been shaken up by
geopolitical events, but volatility in the price difference
between low and high sulphur fuel cannot be explained by that
alone - the uncertainty is the chaos factor.

The uncertainty of the upcoming IMO 2020 Sulphur cap regulation
(IMO2020) is having a big impact on the bunker market. Whereas,
the price for Marine Gas Oil Low Sulphur (MGO LS) has largely
remained stable, the price for High Sulphur Fuel oil (HSFO) has
been become increasingly more volatile in recent months. The
HSFO-MGO LS price spread has, in some ports, widened to levels
exceeding the actual price for HSFO.

IMO2020 adding a disruptive interference in the
market
The oil market has remained on edge in recent months with plenty
of market volatility to go around. The bunker fuel oil market is
normally directly correlated to the developments in the crude oil
market, but recently, IMO2020 has added a seemingly disruptive
interference with the pricing of bunker fuel on top of it.

As people in shipping are painfully aware, in less than two
months, shipowners are no longer allowed to burn fuel oil with
sulphur emissions above 0.5%, unless a scrubber is working on
board. This presents a massive challenge for the industry, where
the vast majority of ships are operating on 3.5% HSFO.

"The bunker price spread illustrates the tumultuous ride that the
bunker market has endured in the last couple of months and
similarly, the spread illuminates why the market is filled with
uncertainty about the future. From October 1 to November 1, the
spread for HSFO-MGO LS in Rotterdam spread widened 21%, from USD
229 to USD 277 per metric tonne," says BIMCO's Chief Shipping
Analyst, Peter Sand.

MGO LS is, as all other bunker fuels, exposed to underlying oil
market shocks, but has exhibited less volatility and fluctuated
around the same price range in 2019. Conversely, price volatility
of HSFO has increased in recent months with significantly greater
fluctuations in price.

BIMCO members can dive into the fluctuations further using the
bunker pricing tool available on the BIMCO website at the market
reports section. It shows the bunker fuel prices in 32 ports
around the world, based on daily information supplied by MABUX.
The service is available to BIMCO members only.

Lightning struck the market repeatedly
A quick review of the market can shed some light over recent
developments. Seemingly, a lightning struck the HSFO market
towards the end of June. Over the course of 14 days.

"Geopolitical events, such as the attack in Saudi Arabia,
certainly impose shocks on the bunker oil market, but recent
movements in the HSFO-MGO LS spread cannot solely be laid at the
feet of geopolitics. Seemingly, the uncertainty of the IMO2020
regulation is disrupting the normal market conditions to a
certain extent. Anecdotal evidence suggests that, in some ports,
greater efforts have been made to store MGO LS on bunker barges,
tightening the market for HSFO." says Peter Sand.

Varying availability
Availability of fuels will vary greatly in between ports and
greatly influence bunker prices. Some ports, such as Singapore,
are increasingly focused on storing MGO LS.

Bunkering in the western hemisphere
At the Panama Canal, one of the main bunkering hubs in Central
America, a similar development has taken place. MGO LS prices
have remained relatively stable.

As fundamentals are off, setting up scenarios will
help
The massive uncertainty in the market is clearly interfering with
the usual pricing mechanisms. BIMCO reckons, that it is no
longer fundamentals driving the market, but rather a market.

Shipowners are ready, are bunker suppliers?
Conflicting narratives are circulating in the market, as IMO2020
draws close.